US Open – Hong Kong in focus, PBOC cuts, Trade Optimism, Oil steady, Gold slumps

Hong Kong is the key focus of the financial markets at the start of the trading week.  The Hong Kong government lost a key rule that Carrie Lam’s mask ban is unconstitutional, a decision that will likely support the chaos to continue.  The Hong Kong high court delivered a decision that last month’s emergency ordinance of a mask ban exceeded what would be reasonable for the police need to enforce the law.

Protests are continuing to spread from the financial district to universities and the disruption is crippling to the Hong Kong economy.

The People’s Liberation Army were seen cleaning up the streets outside the Hong Kong Baptist University, this was the first time since the protests started that the PLA took to the streets.  The PLA’s efforts will play well in Beijing but will do little to dissuade the momentum of protests going on in Hong Kong.

US stocks will look to keep the record run higher going after China’s Ministry of Commerce noted that Vice Premier Liu He had constructive talks with top US officials.

PBOC

China’s game plan appears to be to unleash a steady flow of stimulus.  The worst-case scenario with a collapse in trade talks appear it will not happen and the need for a bazooka of stimulus will not need to happen.  The PBOC delivered a cut to the 7-day reverse repo, its first cut since 2015.  Further measures are expected by the PBOC, with a small cut to the loan prime rate.

Oil

Oil prices could continue to rise on US-China trade optimism and the growing belief that OPEC + could be forced to extend production cuts at the Dec 5-6 meetings.  While the velocity of US production will ease up, energy markets will see strong rises from Brazilian and Norway.  OPEC’s job is also complicated as demand outlooks have steadily been slashed over the past few months.

Gold

Gold still looks vulnerable as it seems very likely we will see the US and China finally agree upon the final parts of a phase-one deal.  With Brexit and the trade war about to deliver potentially two big risk-on scenarios, gold selling could get ugly if we see a breach of last week’ low.  Since the end of the summer, gold was ready for a pullback, not the beginning of a bearish trend.

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